Gearing the

value of

externalities

in low-income

countries

Waste reuse business models

Presentation by Jasper Buijs

Resource Recovery & Reuse, IWMI

October 2013

So what’s the problem?

Roughly 2.6 billion people lack access to adequate sanitation

That’s almost

half…

…the entire

global

population

Why is that a problem?

Because about 24% of the global disease

burden and 23% of all deaths can be

attributed to environmental factors related

to lacking sanitation

Besides causing pain

and discomfort, that is

a huge cost to society

Some more numbersCa. 20 million ha. of

worldwide farmland

are irrigated with

poorly treated

wastewater, producing

crops consumed by an

estimated 10% of the

world’s people!

Current sanitation

systems annually

dump waste into water

bodies with a nutrient

value euivalent to 50

million tons of

fertilizer, worth ca. 15

billion USD!

Ecosystems provide a

worth of 33 trillion

USD per year. 60% of

this value correlates

with nutrient

cycling, pollution

control and waste

management

So bring a solution!

Wait! There are additional factors that complicate finding

solutions. Let’s examine:

People are tired of

seeing public money

wasted.

Development

initiatives need to

create more impact

per dollar spent

Also, making sure there is a market mechanism for the

development solution is a good way to create more impact

per dollar invested, but:

Sanitation

improvements

take high

investments, an

d…

…low incomes

often don’t

support

product-

market

combinations

that drive cost

recovery or

profits

And… due to

this, the sanitation

sector is

characterized by

heavy

subsidization, maki

ng market-based

solutions still harder

to achieve

So what IS a solution?

To bring marketable solutions, more value has to be freed,

so as to carry the cost of sanitation developments.

The central idea is that

exploiting positive social –

and environmental

effects, though often not

directly monetized in a

business model, generates

indirect value that can be

used in business models to

create additional opportunities

Waste reuse business sorts a double value-add effect:

1) Social and environmental burden already present is reduced.

Since a burden is a cost, it thus saves money.

2) It generates additional value by producing products from waste

that have value in the market (e.g. irrigation

water, compost, soil conditioner, biogas, carbon credits, etc.)

Waste reuse business

Total value pool

Existing value pool

(value lost to neg.

externalities)

(loss averted)

Added value

Waste reuse business

Waste is a wrong word. It is a resource that can

be supplied. It is not a problem but a

possibility. Not a potential cost, but a potential

revenue. It should be reused instead of

disposed.

Waste reuse options

Faecal

sludge

Municipal solid

waste

Nutrients (org.

fertilizer, soil

conditioner)

Water

(irrigation, aquifer,

drinking water)

Waste streams Resource Reuse

Agro-waste

EnergyUrine

Wastewater

Agriculture

ElectricityFuel

Aquaculture

Aquifer

recharge, drinking

water

Landscaping, h

orticulture

Industry

1) Reducing burden already present, e.g.

a. Reduced pollution of water bodies lowers treatment

bills, reducing water-borne diseases morbidity

b. Reduced presence of municipal solid waste in

cities, reducing transport costs, reducing foul odors

c. Reduced emission of greenhouse gasses

Value propositions

2) Useful products, e.g.

a. Irrigation water in otherwise water-scarce areas

b. Biogas-produced electricity for industries and farming

that cuts down M&O costs

c. Low-cost organic fertilizers and soil conditioners that

improve long-term productivity of soil

Let’s look at several business models that are currently being used

or are conceivable to succeed in low-income countries*

How to realize such value?

*Using the business model canvas as developed by

Y. Pigneur, A. Osterwalder et al.

For our assessment of the value of the externalities, we will

add the third bottom line.

How to realize such value?

City-scale phyto-remediative wastewater

treatment & fish production

Wastewater + duckweed Quality-checked consumption fish + clean water

External financierFinance

Land

Ww

Expertise, finance

Export & domestic markets

Fish (QC’d)

Clean water

Private enterprise$Farmers $ Municipality $

Wastestabilization

Public-Private Partnership

Key Partners

• Central

government

& external

financier

• Farmers

• Municipality

Key Activities

• Treat wastewater • Grow, process & sell fish

Value Propositions

• Processed & packaged fish for domestic & export markets.

• Partnered wastewater treatment (free) saves treatment costs for municipality & saves fresh water.

Customer Relationships

Customer Segments

• Municipality • Domestic &

export markets for packaged fish

Key Resources

• Free wastewater

• Farmer land and

communal labour

• Expertise duckweed-fish system

• Capital

Channels

Cost Structure

• Capital investment • O&M • Debt repay & equity

Revenue Streams

• Sale of processed & packaged fish to domestic & export

markets

Social & environmental costs Social & environmental benefits

• Reduced pollution of water bodies. • Increased water availability • Reduction of water-borne diseases morbidity, and

reduced associated health & economic costs in the locality

• Increased value of the area

City-scale phyto-remediative wastewater

treatment & fish production

Internalization

of externality

value

Externality

value

Actual direct

value

Lessons

1. Non-monetary, potential value of environmental stress relief

& water stress relief are internalized into the business model

by means of municipal interest.

2. Non-monetary value is tranlated into monetary value by municipality’s

profitable participation in PPP arrangement for which they supply for

free, city’s wastewater.

3. Translation of non-monetary value into real value (cost saving and product

realization) and significant upside justifies capital investment for

infrastructure under loan conditions.

4. Distribution among different stakeholders of key resources for joint venture

enables innovative form of benefit sharing (equity for farming

communities, municipality and private company).

Low-cost fuel briquettes from agricultural

waste and organic municipal solid waste

Organic solid waste Clean-burn fuel briquettes + CO2 emissionsreduction

Waste Agro industry, municipal

ity

IndustryDistributors $Briquettes

Logistics company$ $

Waste

Micro-retailers

Kilns, training

Private enterprise

Farmers$

Micro-franchiseesPresses, training

Briquettes

Charcoal powder

$$

$

HouseholdsBriquettes

$

$Briquettes

Key Partners

Key Activities

• Briquettes trading (buy – package

-resell) and production

• Training franchisees & farmers

• Production & sale/lease of kilns,

pressing machines

Value Propositions

• Cheap and clean-burning

fuel briquettes

• Simple, steady income

generation by franchising

charcoal pressing machine

• Kiln lease to farmers for

income generation through

sale of charcoal powder

Customer Relationships

• Personal help at

direct sales

Customer Segments

• Households

• Industry

• Micro-

franchisees

• Farmers

Key Resources

• Know-how low-cost technology • Network of franchisees and

retailers • (External factors = Government

incentives pro alternative energy; rising charcoal prices)

Channels

• Distributors

• Micro retailers

• Micro franchisees

Cost Structure

• Investment

• O & M

Revenue Streams

• Sale of briquettes

• Franchising fees

• Lease of Kilns

Social & environmental costs

Social & environmental benefits

• Reduced rate of deforestation

• Reduced GHG emissions (reduced solid waste to CO2, reduced

fire wood burning, ‘good charcoal substitutes bad charcoal’

• Better solid waste management

Low-cost fuel briquettes from agricultural

waste and organic municipal solid waste

Externality

value in light of

gov’t policy

Translates into

competitive value

offer (low-

cost, clean)

Low-margin but

steady value for 3

different types of

actors

Growing network

ensuring steady

income, enabling

reinvestment and growth

Lessons

1. The potential value of externalities is internalized by capitalizing on the

development of (low-cost) technology that complies with gov’t regulation

and takes advantage of charcoal price increase.

2. Externalities’ non-monetary value is captured within the character of the

product and the production processes, claiming cost leadership and cleaner

burning, as well as waste removal.

3. Direct value is, beside the enterprise itself, also distributed among 3 other

value chain actors by means of business strategy (kiln leasing, press

franchising, distribution by distributors and micro-retailers

4. Locally well-integrated, the business system allows small, but steady

margins for a network of different stakeholders, enabling company’s mild

but steady growth, and steadily growing positive externalities.

Livestock waste for carbon credits

and biogas-based energy

Livestock waste Biogas-based energy + carbon credits

Enterprise’s sustainability

branch

Farms

SupplierEquipment

Meat products enterprise

Carbon credits market

Finance

slaughter animals

CO2 emission reductions

Bio-digesters on BOT

Meat marketsMeat products

$ $

Energy

Manure

Biogas$

$

Bio-digesters pay-back on BOT

Share of carboncredit value

$

$$$

Key Partners

• Livestock farmers

• External financier

• Equipment suppliers

Key Activities

• Installation of biodigester on farms on BOT basis

• Managing CDM processes & obtaining

carbon credits

• Processing, and selling meat

• Branding & marketing

Value Propositions

• Environmentally sustainably

produced meat.

• Tradable carbon credits to meet

carbon emission reduction

commitments

• Improved environmental health through GHG emission reductions, reduced pollution of water bodies and soils

Customer Relationships

• Personal • Registered as CDM at

UNFCCC •

Customer Segments

• ‘Green’ meat consumers

• Annex 1 countries

Key Resources

• Bio-digesters, gas volume measurement equipment& technical know-how

• Brands, green reputation • Investment capital • Farms’ supply loyalty • (External factors = Regulation and/or

perception of good waste management)

Channels

• Meat chain distributors • Carbon credit trading

platforms

Cost Structure

• Capital investment cost • Equipment supplies • On-farm training

•

Revenue Streams

• Meat sales to ‘green’ consumers

• Carbon credits from sales of GHG emission reduction.

Social & environmental costs

Social & environmental benefits

• Reduced GHG emissions from associated farms.

• Reduced pollution of water bodies and soils

• Improved animal waste management system and better working conditions,

less odor.

• Improved social and economic sustainability of swine farms.

Livestock waste for carbon credits

and biogas-based energy

Internalized by

incorporation of

company’s

sustainability

branch

Externality

value in light of

gov’t policy

Translation into

real value

through multiple

revenue lines

Lessons

1. The potential value of externalities is internalized by capitalizing on

compliance with gov’t regulation and the incorporation of a company branch

focusing on an optimized compliance business strategy

2. Externalities’ non-monetary value is captured within the character of the

product and the production processes, claiming quality leadership as well as

GHG emission reduction and waste removal.

3. Actual direct value is translated from externalities’ indirect value through

accessing additional (green) markets and fetching associated premium

prices, and through credits for GHG emission reductions

4. Benefits are shared with other value chain actors: Farms’ M&O reduction;

Farms’ income diversification and increase; Increased network and revenue

for materials suppliers.

Compilation of externality value

mechanismsInternalization

because

Internalization

by

Translation into

direct value by

Other direct

value generated

Benefits

distribution,

because

Community interest 1

Municipal interest 2-3

Industry and/or farming interest 2-3

Gov’t regulation 1

Community mobilization 1

Industry branching 1

Adapted product, value offer 2-3

Partnership arrangement 2-3

Products sold 3

Price fetched 1

Costs averted 1-2

Investment outlook improved 2

Network & partnerships growth 2

Business risk reduction 1

Partner/customer cost reduction 3

+ productive capacity community 1

Partner/customer income increase 3

Network/partnership value 2-3

Prior distribution key resources 3

Geographical characteristics 1

* 1 = Sometimes, 2 = Regularly, 3 = Very often

Observation

The value that waste reuse business generates for itself and its customers, in low-

income countries, is very much bound by high

Interdependencyamong different value chain actors. Sufficient value is often generated only when

they all take part in receiving direct benefits

Analyze business ecosystems

This implies finding the most salient factors throughout the business

ecosystem (i.e. those factors with highest repetition, and/or of highest

value or impact). It could imply developing a new way to use the business

model canvas.

Because business

settings feature high

stakeholder inter-

dependencies, we need

to analyze business

opportunities based on

the entire business

ecosystem.

Conclusions

1. Waste reuse business models have great development potential, because they

sort both effects of reduction of current problems (and associated costs) as

well as effects of increase of productivity (and income).

2. The indirect value of externalities can be internalized into waste reuse

business models and subsequently translated into generation of additional

direct value, increasing the financial viability of a larger variaty of

development opportunities.

3. A variety of routes to internalization and translation exist, but the most

common are: Internalization by munipal interest, through adapted products

and value offers, and through enabling partnership arrangements. Translation

through products sold, and to slightly lesser extent through improved

investment outlook and averted costs.

Conclusions - continued

5. Business settings in low-income countries exhibit high interdependency

among different value chain actors. The value that businesses generate for

themselves and their customers, as well as the additional value that can be

won from internalizing and translating externality value, can often

materialize only when business settings enable the distribution of direct

benefits among (many) different value chain actors.

4. Direct value benefits are distributed among different stakeholders in the

waste reuse value chain for a variety of reasons, but most commonly because

of the multiple benefits-character of the businesses that appeals to different

stakeholders, because of the value of the networks and partnerships, and

because of the prior distribution of key resources.

Credits

• Building on joint work with:

• Other team members of the RRR group at IWMI in Sri lanka and

IWMI-Ghana office (Pay Drechsel, Miriam Otoo, Krishna C. Rao,

George Danso, Solomie Gebrezgabher)

• International Centre for Water Management Services, Switzerland